Clofazimine (CFZ) is an FDA-approved leprostatic and anti-inflammatory drug that massively accumulates in macrophages, forming insoluble, intracellular crystal-like drug inclusions (CLDIs) during long-term oral dosing. Interestingly, when added to cells in vitro, soluble CFZ is cytotoxic because it depolarizes mitochondria and induces apoptosis. Accordingly, we hypothesized that, in vivo, macrophages detoxify CFZ by sequestering it in CLDIs. To test this hypothesis, CLDIs of CFZ-treated mice were biochemically isolated and then incubated with macrophages in vitro. The cell biological effects of phagocytosed CLDIs were compared to those of soluble CFZ. Unlike soluble CFZ, phagocytosis of CLDIs did not lead to mitochondrial destabilization or apoptosis. Rather, CLDIs altered immune signaling response pathways downstream of Toll-like receptor (TLR) ligation, leading to enhanced interleukin-1 receptor antagonist (IL-1RA) production, dampened NF-κB activation and tissue necrosis factor alpha (TNFα) production, and ultimately decreased TLR expression levels. In aggregate, our results constitute evidence that macrophages detoxify soluble CFZ by sequestering it in a biocompatible, insoluble form. The altered cellular response to TLR ligation suggests that CLDI formation may also underlie CFZ's anti-inflammatory activity.